Yorel Petrie, of Henderson, Kentucky, pleaded guilty on February 20, 2013, to a one-count federal indictment returned on September 12, 2012. According to the plea agreement, between January 2008 and October 6, 2009, Petrie, while owner and operator of Tree Tops, trafficked in hats, shoes, and clothes, while knowingly using counterfeit marks to represent trademarks then owned and registered with the U.S. Patent and Trademark Office. Examples of the spurious marks the defendant knowingly used, which were identical to or substantially indistinguishable from marks that were then in use and registered for hats, shoes, or clothes include: the Nike “Swoosh” trademark, the Nike “Jumpman” trademark, the Polo Ralph Lauren “Polo by Ralph Lauren” tag, the Major League Baseball logo, the NBA logo “Jerry West” silhouette, the Ed Hardy stylized cursive logo, and the Lacoste “alligator” logo.

Petrie admitted in court that the purpose of the Tree Tops business was the importation and sale of goods bearing counterfeit trademarks. Further, Petrie admitted that the use of the counterfeit marks and logos was likely to cause confusion and deceive customers.

This case is being prosecuted by Special Assistant United States Attorney Micah R. Reyner and is being investigated by the Federal Bureau of Investigation (FBI).

According to the stipulated factual basis at the guilty plea, Soileau admitted that he used a portable USB storage device to access his former employer’s computers at Applied Electronic Systems and Sondex, which are both located in Broussard, Louisiana, and subsidiaries of General Electric Oil and Gas (GE). Soileau downloaded more than 3,700 files containing pictures, diagrams, and other information relating to tools and equipment used in oilfield exploration work. He then brought the information to his new employer at Advanced Electronic Services, and they used the information for work done at Advanced Electronic Services. After being questioned by GE security staff, Soileau admitted to taking the computer files and providing them to his new employer. FBI agents linked Soileau to the computers used in the theft through the USB.

Soileau faces a maximum penalty of five years in prison, a $250,000 fine, restitution, and three years of supervised release for the count of unauthorized access to a protected computer. Sentencing was set for September 13, 2013, in Lafayette. The FBI conducted the investigation. Assistant U.S. Attorney Namie P. Myers is prosecuting the case.

“Theft of intellectual property information is a growing problem in our country,” Finley stated. “We are primarily seeing it here in the oil and gas industry, but it occurs in many other industries. Intellectual Property theft hurts everyone, not just companies, and our office will continue to investigate and prosecute those who violate these laws. On the eve of World IP Day, this prosecution should serve as a deterrent to those who would seek to profit by stealing the intellectual property of others.”

Intellectual property (IP) refers to creations of the mind, inventions, literary and artistic works, and symbols, names, images, and designs used in commerce. World IP Day was established by the World Intellectual Property Organization (WIPO) to be celebrated every April 26th in order to promote the discussion of IP in encouraging innovation and creativity. The entire U.S. economy relies on some form of IP, because virtually every industry either produces it or uses it. American IP-intensive industries directly accounted for 27.1 million American jobs or 18.8 percent of all employment in the economy in 2010.

Intellectual property theft is an ongoing problem, and the Department of Justice’s Task Force on Intellectual Property, the National Intellectual Property Rights Coordination Center (IPR Center), the National Crime Prevention Council (NCPC), and other government and private organizations work to fight IP theft. Citizens can help stop IP theft by not purchasing “knock-offs,” pirated media, or other counterfeit goods. To find out more about IP theft, the public is encouraged to visit www.justice.gov/dag/iptaskforce, www.iprcenter.gov, and www.ncpc.org/topics/intellectual-property-theft.

The jury found that Nosal had conspired to gain unauthorized access to the computer system of his former employer, the executive search firm Korn/Ferry International, and to illegally obtain trade secrets belonging to Korn/Ferry. The jury also found Nosal guilty of three substantive computer intrusions in April and July 2005 and two substantives trade secret offenses that occurred in April 2005. The guilty verdict followed a two-week jury trial before U.S. District Court Judge Edward M. Chen.

Evidence at trial showed that Nosal, 55, of Danville, entered into an agreement with other Korn/Ferry employees in 2004 to take confidential and proprietary materials from Korn/Ferry’s computer system to be used in a new business that Nosal intended to establish with those individuals after he left Korn/Ferry’s employment in late 2004. The evidence showed that two of those employees downloaded large numbers of “source lists” (essentially, targeted lists of candidates developed by Korn/Ferry for the purpose of filling particular positions at particular client-companies) prior to their own departures from Korn/Ferry. Thereafter, those two employees used the Korn/Ferry login credentials of another conspirator who was still employed at Korn/Ferry to download additional source lists and other information from Korn/Ferry’s computer system in April and July 2005 for use in Nosal’s new business.

The trial in this case occurred after remand from the Ninth Circuit Court of Appeals, which had affirmed then-District Court Judge Marilyn H. Patel’s pre-trial dismissal of several computer intrusion counts.

Nosal was initially indicted by a federal grand jury on April 10, 2008. The government obtained superseding indictments on June 26, 2008 and February 28, 2013. In the most recent superseding indictment, Nosal was charged with one count of conspiracy, three counts of unauthorized access to a computer used in interstate or foreign commerce or communication, one count of unauthorized downloading and copying of trade secrets, and one count of unauthorized receipt and possession of stolen trade secrets. Nosal was found guilty on all six counts of this indictment.

The sentencing of Nosal is scheduled for September 4, 2013, before Judge Edward M. Chen in San Francisco. The maximum statutory penalty for the conspiracy charge in violation of Title 18, United States Code, Section 371 and the unauthorized access charges in violation of Title 18, United States Code, Section 1030(a)(4), is five years’ imprisonment and a fine of $250,000, plus restitution if appropriate. The maximum statutory penalty for the trade secret charges is 10 years’ imprisonment and a fine of $250,000, plus restitution if appropriate. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

Assistant United States Attorneys Kyle F. Waldinger and Matthew A. Parrella and U.S. Department of Justice Trial Attorney Jenny C. Ellickson are the attorneys who are prosecuting the case with the assistance of Rayneisha Booth, Elise Etter, Beth Margen, and Hui Chen. The prosecution is the result of an investigation by the Federal Bureau of Investigation.

According to court records, a federal grand jury returned the two-count indictment against Dr. Zhao on April 9, 2013. If convicted, the defendant faces a maximum term of 10 years’ imprisonment, a fine of up to $250,000, and a maximum of three years’ supervised release for the charge of attempting to damage a protected computer; and a maximum term of five years’ imprisonment, a fine of up to $250,000, and a maximum of three years’ supervised release for the charge of making a false statement.

Court records indicate that Dr. Zhao, a research scientist formerly employed by the medical college, previously had been charged in a criminal complaint with the theft of the anti-cancer compound, in violation of the Economic Espionage Act. The United States moved to dismiss that complaint without prejudice in light of the indictment returned by the grand jury. According to court records, the indictment relates to efforts by Dr. Zhao to obstruct the investigation into the theft of the compound by lying to the FBI and by covertly accessing the medical college’s computer server and attempting to delete proprietary information—including research data—related to the stolen compound.

United States Attorney Santelle explained: “The professional work being done by institutions like the Medical College of Wisconsin is vital to the present care and treatment and the future health and welfare of individuals in Wisconsin, throughout the United States, and across the globe. The United States Department of Justice, the Office of the United States Attorney, and the Federal Bureau of Investigation, in cooperation with our partners in the public and private sectors, are all committed to vigorously enforcing federal criminal law, to ensuring the safety of our community, to guarding against all threats to our economy, and to protecting our nation’s leadership in medical innovation and research.” United States Attorney Santelle added that the investigation into the ultimate disposition of the stolen compound and the ultimate intended use of the proprietary information stolen from the medical college and transported overseas is continuing.

“Proactive outreach through our Strategic Partnership Program was a key factor in this case—the arrest was a direct result of building awareness of insider threats with our public and private partners,” said Teresa L. Carlson, Special Agent in Charge. “The FBI will aggressively pursue those who damage or delete information on protected computer systems to further their own interests.”

The investigation in this matter is being conducted by the FBI, and the case is being prosecuted by Assistant U.S. Attorney Stephen A. Ingraham.

Indictments and criminal complaints are merely the formal method of charging an individual and do not constitute inference of his or her guilt. An individual is presumed innocent until such time, if ever, that the government establishes his or her guilt beyond a reasonable doubt.

“Counterfeit airbags shred the safety systems built into our cars, which could cause catastrophic results. Counterfeit airbags may fail to deploy in crashes or deploy in a ball of fire,” said U.S. Attorney Jenny A. Durkan. “I commend the investigation by the FBI and Homeland Security Investigations to stem the flow of these counterfeits to get them out of our cars and marketplace.”

According to the indictment, Yaremkiv operated a business, Vital Auto Parts and Sales, out of his Vancouver home. He allegedly imported counterfeit Honda, Subaru, and Toyota airbags from sources in China and elsewhere and sold them over the Internet representing them as the genuine product. Yaremkiv sold at least 964 of the counterfeit airbags via eBay with a sales total of $137,243. Yaremkiv sold individual Honda airbags for an asking price of $110. Investigators believe that many of the airbags are sold to independent garages who install them in vehicles believing they have purchased a genuine airbag.

“Counterfeit air bags are untested, unregulated, and extremely unsafe,” said Brad Bench, Special Agent in Charge of HSI Seattle. “While law enforcement is working to stem the flow of these dangerous products into the U.S., it’s important that consumers are aware of this danger. Automobile safety experts say it’s critical that vehicle owners work with their automotive dealers and repair professionals to ensure they use the appropriate, original equipment parts in the event they need to replace their air bag.”

“Every day, people entrust their lives to safety devices because they have been thoroughly researched, rigorously tested, and carefully constructed,” said FBI Assistant Special Agent in Charge Carlos L. Mojica. “Counterfeit devices do not carry that same guarantee, threatening the lives of unknowing users and violating their trust. The FBI and its partners will continue to seek and stop those like Mr. Yaremkiv, who irresponsibly put innocent lives at risk for their personal, financial gain.”

Information for consumers regarding counterfeit airbags is available here: http://www.safercar.gov/

The case was investigated by the FBI and Homeland Security Investigations. The case is being prosecuted by Assistant United States Attorney Norman Barbosa.

Press contact for the U.S. Attorney’s Office is Emily Langlie at (206) 553-4110 or Emily.Langlie@usdoj.gov.

Zhao is alleged to have used his employment and position at the Medical College of Wisconsin to illegally acquire patented cancer research material and to have taken steps to provide that material to Zhejiang University in China. The public is reminded individuals placed under arrest are presumed innocent until proven guilty.

The arrest was a direct result of successful outreach by the FBI’s Division’s Strategic Partnership Program. This program focuses on fostering communication and building awareness through partnerships with key public and private entities. The goal of the outreach is to protect United States sensitive information, technologies, and competitiveness in an age of globalization.

“This investigation underscores the importance of the FBI’s outreach to our community partners,” said Teresa L. Carlson, Special Agent in Charge. “The FBI will aggressively pursue those who would attempt to steal trade secrets, proprietary information, or national security information.”

The FBI Milwaukee Division’s Strategic Partnership Program provides businesses and academia the tools to recognize, identify, and report insider threats, theft of trade secrets, and economic espionage. The FBI encourages businesses and academia to contact the Strategic Partnership Coordinator Special Agent Byron Franz at 414-291-4371 for more information on this outreach program or to report suspected threats.

Sixing Liu, aka, “Steve Liu,” 49, a PRC citizen who had recently lived in Flanders, New Jersey, and Deerfield, Illinois, has been in custody since the September 2012 verdict, based on his risk of flight.

“Instead of the accolades he sought from China, Sixing Liu today received the appropriate reward for his threat to our national security: 70 months in prison,” said U.S. Attorney Fishman. “As an innovation leader, the United States is a target for those seeking to cut corners at the expense of American businesses and consumers. As this sentence shows, the Department of Justice is making great progress in the fight against trade secret theft in order to protect the engines of our nation’s economic recovery.”

The jury convicted Liu of nine of the 11 counts in the second superseding indictment with which he was charged, including six counts of violating the Arms Export Control Act and the International Traffic in Arms Regulations, one count of possessing stolen trade secrets in violation of the Economic Espionage Act of 1996, one count of transporting stolen property in interstate commerce, and one count of lying to federal agents.

In addition to the prison term, Liu was sentenced to serve three years of supervised release and ordered to pay a $15,000 fine. Restitution is to be determined at a later date.

According to documents filed in the case and evidence presented at trial:

In 2010, Liu stole thousands of electronic files from his employer, L-3 Communications, Space and Navigation Division, located in Budd Lake, New Jersey. The stolen files detailed the performance and design of guidance systems for missiles, rockets, target locators, and unmanned aerial vehicles. Liu stole the files to position and prepare himself for future employment in the PRC. As part of that plan, Liu delivered presentations about the technology at several PRC universities, the Chinese Academy of Sciences, and conferences organized by PRC government entities.

On November 12, 2010, Liu boarded a flight from Newark Liberty International Airport to the PRC. Upon his return to the United States on November 29, 2010, agents found Liu in possession of a non-work-issued computer containing the stolen material. The following day, Liu lied to agents of the Department of Homeland Security about the extent of his work on U.S. defense technology, which the jury found to be a criminal false statement.

The U.S. Department of State’s Directorate of Defense Trade Controls later verified that several of the stolen files on Liu’s computer contained export-controlled technical data that relates to defense items listed on the United States Munitions List (USML). Under federal regulations, items and data covered by the USML may not be exported without a license, which Liu did not obtain. The regulations also provide that it is the policy of the United States to deny licenses to export items and data covered by the USML to countries with which the United States maintains an arms embargo, including the PRC.

The jury heard testimony that Liu’s company trained him about the United States’ export control laws and told him that most of the company’s products were covered by those laws.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Acting Special Agent in Charge David Velazquez; special agents of ICE-Homeland Security Investigations, under the direction of Special Agent in Charge Andrew McLees; and officers of U.S. Customs and Border Protection, under the leadership of Director of New York Field Operations Robert E. Perez, for the investigation leading to the sentence.

The government is represented by Assistant U.S. Attorney L. Judson Welle of the U.S. Attorney’s Office National Security Unit and Assistant U.S. Attorney Gurbir S. Grewal of the Computer Hacking and Intellectual Property Section of the U.S. Attorney’s Office Economic Crimes Unit, both in Newark. The prosecution received valuable support from attorneys of the U.S. Department of Justice’s National Security Division, Counterespionage Section.

The indictment alleges that from July 2012 to February 2013, the defendants conspired to traffic in counterfeit goods and to engage in criminal copyright infringement. According to the indictment, Godinez-Sales maintained a warehouse in San Jose where he distributed CDs and DVDs containing counterfeit copies of movies and music. Martinez-Cruz and Garcia-Venegas were two of his customers. They would transport large quantities of the counterfeit CDs and DVDs from San Jose to Glenn County and Yuba County where they would sell them. The indictment also charges Martinez-Cruz and Garcia-Venegas with one count of criminal copyright infringement for selling counterfeit copyright goods and one count of trafficking in goods bearing counterfeit trademarks.

This case is the product of an extensive investigation by the Federal Bureau of Investigation and the Sacramento High Tech Crimes Task Force. Assistant United States Attorney Matthew Morris is prosecuting the case.

Godinez-Sales was arrested in San Jose on February 22, 2013, on an arrest warrant issued from the Eastern District of California. Martinez-Cruz and Garcia-Venegas were arrested on state charges on February 24, 2013, in Marysville and Orland, where they are being held.

The maximum statutory penalty for conspiracy or criminal copyright infringement is five years in prison and a $250,000 fine. The maximum penalty for trafficking in goods bearing counterfeit marks is 10 years in prison and a $2 million fine. Any sentence, if convicted, would be determined at the discretion of the court after consideration of any applicable statutory factors and the Federal Sentencing Guidelines, which take into account a number of variables.

The charges are only allegations, and the defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt.

Assistant U.S. Attorney Tiffany H. Lee, who is handling the case, stated that between January 2007 and August 2010, DeBerger bought legal copies of copyright protected DVD movies and burned copies on his home computer. The defendant then sold them online for $3.99 a piece. During the time period, DeBerger sold over 7,000 DVDs.

The plea is the culmination of an investigation on the part of the special agents from Federal Bureau of Investigation, under the direction of Christopher M. Piehota, Special Agent in Charge.

Sentencing is scheduled for May 29, 2013, at 3 p.m. before Judge Geraci.

The FBI has established strong practices for sharing intelligence, leveraged key technologies to help us be more efficient and productive, and hired some of the best to serve as special agents, intelligence analysts, and professional staff. We have built a workforce and leadership cadre that view change and transformation as a positive tool to keeping the FBI focused on the key threats facing our nation.

Just as our national security and criminal adversaries and threats constantly adapt and evolve, so must the FBI be able to quickly respond with new or revised strategies and operations to counter these threats. Looking forward, a key challenge facing the FBI will be maintaining its current capabilities and capacities to respond to these threats at a time when the budgetary environment remains constrained.

We live now, and will for the foreseeable future, in a time of acute and persistent threats to our national security, economy, and community safety from terrorists, foreign adversaries, criminals and violent gangs, and cyber attackers. This subcommittee understands these threats—and the consequences of failing to address them. I look forward to working with the subcommittee to ensure that the FBI maintains the intelligence, investigative, and infrastructure capabilities and capacities needed to deal with these threats and crime problems within the current fiscal climate. One lesson we have learned is that those who would do harm to the nation and its citizens will exploit any weakness they perceive in the ability and capacity of the U.S. government to counter their activities. We must identify and fix those gaps while not allowing new weaknesses or opportunities for terrorists, cyber criminals, foreign agents, and criminals to exploit.

The threats facing the homeland, briefly outlined below, underscore the complexity and breadth of the FBI’s mission to protect the nation in a post-9/11 world.

National Security Threats

Terrorism

We have pursued those who committed or sought to commit acts of terrorism against the United States. Along with our partners in the military and intelligence communities, we have taken the fight against terrorism to our adversaries’ own sanctuaries in the far corners of the world—including Iraq, Afghanistan, Pakistan, Southwest Asia, and the Horn of Africa. We have worked to uncover terrorist sleeper cells and supporters within the United States and disrupted terrorist financial, communications, and operational lifelines at home and abroad. We have built strong partnerships with law enforcement in countries around the world.

The threat from terrorism remains complex and ever changing. We are seeing more groups and individuals engaged in terrorism, a wider array of terrorist targets, greater cooperation among terrorist groups, and continued evolution and adaptation in tactics and communication.

Threats from homegrown terrorists are also of great concern. These individuals are harder to detect, easily able to connect with other extremists, and—in some instances—highly capable operationally. There is no typical profile of a homegrown terrorist; their experiences and motivating factors are distinct.

Radicalization to violence remains an issue of great concern. No single factor explains why radicalization here at home may be more pronounced than in the past. Several factors may help frame the current dynamic. First, American extremists appear to be attracted to wars in foreign countries. We have already seen a number of Americans travel overseas to train and fight with extremist groups. The increase and availability of extremist propaganda in English perpetuates the problem.

The Internet has had a profound impact on radicalization. It has become a key platform for spreading extremist propaganda and has been used as a tool for terrorist recruiting, training, and planning. It also serves as a means of social networking for like-minded extremists.

While we have had success both in disrupting plots and obtaining convictions against numerous terrorists, we have seen an increase in the sources of terrorism, an evolution in terrorist tactics and means of communication, and a wider array of terrorist targets here at home. All of this makes our mission that much more difficult.

Foreign Intelligence

While foreign intelligence services continue traditional efforts to target political and military intelligence, counterintelligence threats now include efforts to obtain technologies and trade secrets from corporations and universities. The loss of critical research and development data, intellectual property, and insider information poses a significant threat to national security.

Each year, foreign intelligence services and their collectors become more creative and more sophisticated in their methods to steal innovative technology, which is often the key to America’s leading edge in business. Last year alone, the FBI estimates that pending economic espionage cases cost the American economy more than $13 billion. In the last four years, the number of arrests the FBI has made associated with economic espionage has doubled, indictments have increased five-fold, and convictions have risen eight-fold.

As the FBI’s economic espionage caseload is growing, the percentage of cases attributed to an insider threat has increased, meaning that individuals trusted as employees and contractors are a growing part of the problem. The insider threat, of course, is not new, but it is becoming more prevalent for a host of reasons, including that theft of company information is a low-cost route to avoid investment in research; the ease of stealing information that is stored electronically, especially when one has legitimate access to it; and the increasing exposure of businesses to foreign intelligence services as joint ventures grow and businesses becomes more global.

To address the evolving insider threat, the FBI has become more proactive to prevent losses of information and technology. The FBI continues expanding outreach and liaison alliances to government agencies, the defense industry, academic institutions, and, for the first time, to the general public, because of an increased targeting of unclassified trade secrets across all American industries and sectors.

Through these relationships, the FBI and its counterintelligence partners must continue our efforts to identify and prevent the loss of sensitive American technology.

Intelligence

Since September 11, 2001, we have improved our intelligence collection and analytical capabilities across the board. Today, we are collecting and analyzing intelligence to better understand all threats—those we know about and those that have not yet materialized. We recognize that we must always look for ways to refine our intelligence capabilities to stay ahead of these changing threats. The FBI recently restructured its Directorate of Intelligence to maximize organizational collaboration, identify and address emerging threats, and more effectively integrate intelligence and operations within the FBI. With this new structure, each office can better identify, assess, and attack emerging threats.

Cyber

As this committee knows, the cyber arena has significantly changed over the last decade. Cyber attacks and crimes are becoming more commonplace, more sophisticated, and more dangerous. The scope and targets of these attacks and crimes encompass the full range and scope of the FBI’s criminal investigative and national security missions. Traditional crime, from mortgage and health care fraud to child exploitation, has migrated online. Terrorists use the Internet to recruit, to communicate, to raise funds, to train and propagandize, and as a virtual town square, all in one. On a daily basis, we confront hacktivists, organized criminal syndicates, hostile foreign nations that seek our state secrets and our trade secrets, and for-profit actors willing to hack for the right price.

Since 2002, the FBI has seen an 84 percent increase in the number of computer intrusions investigations opened. Hackers—whether state sponsored, criminal enterprises, or individuals—constantly test and probe networks, computer software, and computers to identify and exploit vulnerabilities. We are working with our partners, both foreign and domestic, to develop innovative ways to identify and confront the threat as well as mitigate the damage. There is always more work to be done, but we have had some success, including the 2011 takedown of Rove Digital, a company founded by a ring of Estonian and Russian hackers to commit a massive Internet fraud scheme.

The Rove Digital scheme infected more than four million computers located in more than 100 countries with malware. The malware secretly altered the settings on infected computers, enabling the hackers to digitally hijack Internet searches using rogue servers for Domain Name System (DNS) routers and re-routing computers to certain websites and ads. The company received fees each time these websites or ads were clicked on or viewed by users and generated $14 million in illegitimate income for the operators of Rove Digital.

Because Estonia has improved its domestic laws, we were able to work with our law enforcement counterparts and our private industry partners to execute a takedown of this criminal organization. Following the arrest of several co-conspirators in Estonia, teams of FBI agents, linguists, and forensic examiners assisted Estonian authorities in retrieving and analyzing data that linked the co-conspirators to the Internet fraud scheme. At the same time, we obtained a court order in the United States to replace the rogue DNS servers with court-ordered clean servers.

In this case, we not only took down the criminal organization, but we also worked with our partners in the Department of Homeland Security (DHS) and other agencies to mitigate the damage. Seven individuals have been indicted in the Southern District of New York in this case—six in Estonia and one in Russia. The United States has sought extradition of all six Estonian subjects. To date, two of them have been remanded to U.S. custody. One pled guilty on February 1, 2013.

We have also worked against infrastructure we believe has been used in Distributed Denial of Service (DDoS) attacks, preventing it from being used for future attacks. Since October, the FBI and DHS have released nearly 130,000 Internet Protocol addresses determined to be infected with DDoS malware. We have released this information through joint intelligence bulletins (JIBs) to 129 countries. These JIBs are released by both the DHS’ Computer Emergency Readiness Team mechanisms as well as by our legal attachés to our foreign partners. These actions have enabled our foreign partners to take action and reduced the effectiveness of the botnets and the DDoS attacks.

Just as the FBI has transformed its counterterrorism and intelligence programs to deal with an evolving and adapting threat, the Bureau is strengthening its cyber program and capabilities. Computer intrusions and network attacks are the greatest cyber threat to our national security. To better prioritize our cyber resources, last year we focused our Cyber Division on computer intrusions and moved all other cyber-facilitated crimes that are perpetrated over the Internet to our Criminal Investigative Division. This allows the FBI to leverage resources that already exist to counter the ever-increasing cyber threat.

The FBI has also focused on hiring specialized personnel to address this growing threat. The FBI now has more than 1,000 specially trained agents, analysts, and digital forensic examiners that run complex undercover operations and examine digital evidence. The FBI is the executive agent of the National Cyber Investigative Joint Task Force, which includes representatives from 19 law enforcement and intelligence agency partners. The task force operates through Threat Focus Cells—smaller groups of agents, officers, and analysts focused on particular threats.

U.S. law enforcement and intelligence communities, along with our international and private sector partners, are making progress. Technological advancements and the Internet’s expansion continue to provide malicious cyber actors the opportunity to harm U.S. national security and the economy. Given the consequences of such attacks, the FBI must be able to keep pace with this rapidly developing and diverse threat.

TEDAC

The FBI established the Terrorist Explosive Devices Analytical Center, or TEDAC, in 2003. Over the past 10 years, it has proved to be a valuable tool supporting the military, homeland security, international partners, and intelligence and law enforcement communities. Prior to TEDAC, no single part of our government was responsible for analyzing and exploiting intelligence related to terrorist improvised explosive devices (IEDs). Today, TEDAC supports the efforts of our entire government, from law enforcement to intelligence to the military, in developing and sharing intelligence about terrorist explosive devices.

Nearly all IEDs of interest to the United States government pass through TEDAC, allowing our technicians, examiners, scientists, and intelligence analysts to see the full spectrum of devices and to recognize trends in their construction and components. This, in turn, helps us to disarm or disrupt these devices, to link IEDs to their makers, to develop new countermeasures, and—most importantly—to prevent future attacks.

TEDAC has received more than 95,000 submissions since its creation. By forensically and technically exploiting IEDs and their components, scientists and engineers are able to make matches and connections between seemingly unrelated IEDs. These connections have supplied valuable information to our war fighters on the front lines, as well as to law enforcement and intelligence personnel protecting the homeland. TEDAC’s work has resulted in actionable intelligence and progress in the fight against increasingly sophisticated and deadly explosive devices.

Thanks to the resources provided by this committee the FBI has begun construction of a new TEDAC facility at Redstone Arsenal in Huntsville, Alabama, which is expected to be complete by February 2014. This new facility will allow TEDAC operations to be co-located at a single site, allowing for more efficient and integrated forensic and intelligence activities.

Criminal Threats

The nation faces many criminal threats, from complex white-collar fraud in the financial, health care, and housing sectors to transnational and regional organized criminal enterprises to violent gangs and crime to public corruption. Even these threats have changed significantly since 2002. Criminal organizations—domestic and international—and individual criminal activity represent a significant threat to our security and safety in communities across the nation. I would like to briefly highlight a number of these criminal threats—and FBI capabilities for dealing with these threats—for the subcommittee.

Gangs and Violent Crime

Violent crimes and gang activities exact a high toll on victimized individuals and communities. There are approximately 33,000 violent street gangs, motorcycle gangs, and prison gangs with about 1.4 million members who are criminally active in the U.S. today. A number of these gangs are sophisticated and well organized; many use violence to control neighborhoods and boost their illegal money-making activities, which include robbery, drug and gun trafficking, fraud, extortion, and prostitution rings. Gangs do not limit their illegal activities to single jurisdictions or communities. The FBI is able to work across such lines and, therefore, brings particular value to the fight against violent crime in big cities and small towns across the nation. Every day, FBI special agents work in partnership with state and local officers and deputies on joint task forces and individual investigations.

FBI joint task forces—Violent Crime Safe Streets, Violent Gang Safe Streets, and Safe Trails Task Forces—focus on identifying and targeting major groups operating as criminal enterprises. Much of the Bureau’s criminal intelligence is derived from our state, local, and tribal law enforcement partners, who know their communities inside and out. Joint task forces benefit from FBI surveillance assets, and their sources track these gangs to identify emerging trends. Through these multi-subject and multi-jurisdictional investigations, the FBI concentrates its efforts on high-level groups engaged in patterns of racketeering. This investigative model enables us to target senior gang leadership and to develop enterprise-based prosecutions.

Violence Along the Southwest Border

Violence and corruption associated with drug trafficking in Mexico continues to be a significant issue—not only along the Southwest Border, but also in many communities throughout the U.S. where Mexican drug traffickers have established a presence. In addressing this crime problem, the FBI relies on a multi-faceted approach for collecting and sharing intelligence—an approach made possible and enhanced through the Southwest Intelligence Group, the El Paso Intelligence Center, OCDETF Fusion Center, and the intelligence community. Guided by intelligence, the FBI and its federal law enforcement partners are working diligently, in coordination with the government of Mexico, to counter violent crime and corruption that facilitates the flow of illicit drugs into the United States.

Organized Crime

Ten years ago, the image of organized crime was of hierarchical organizations, or families, that exerted influence over criminal activities in neighborhoods, cities, or states. That image of organized crime has changed dramatically. Today, international criminal enterprises run multi-national, multi-billion-dollar schemes from start to finish. These criminal enterprises are flat, fluid networks and have global reach. While still engaged in many of the “traditional” organized crime activities of loan-sharking, extortion, and murder, new criminal enterprises are targeting stock market fraud and manipulation, cyber-facilitated bank fraud and embezzlement, identify theft, trafficking of women and children, and other illegal activities. This transformation demands a concentrated effort by the FBI and federal, state, local, and international partners to prevent and combat transnational organized crime.

The FBI is expanding its focus to include West African and Southeast Asian organized crime groups. The Bureau continues to share intelligence about criminal groups with our partners and to combine resources and expertise to gain a full understanding of each group. To further these efforts, the FBI participates in the International Organized Crime Intelligence Operations Center (IOC-2). This center serves as the primary coordinating mechanism for the efforts of nine federal law enforcement agencies in combating non-drug transnational organized crime networks.

Crimes Against Children

The FBI remains vigilant in its efforts to remove predators from our communities and to keep our children safe. Ready response teams are stationed across the country to quickly respond to abductions. Investigators bring to this issue the full array of forensic tools such as DNA, trace evidence, impression evidence, and digital forensics. Through improved communications, law enforcement also has the ability to quickly share information with partners throughout the world, and our outreach programs play an integral role in prevention.

The FBI also has several programs in place to educate both parents and children about the dangers posed by violent predators and to recover missing and endangered children should they be taken. Through our Child Abduction Rapid Deployment teams, Innocence Lost National Initiative, Innocent Images National Initiative, Office for Victim Assistance, and numerous community outreach programs, the FBI and its partners are working to make our world a safer place for our children.

Technology

As criminal and terrorist threats become more diverse and dangerous, the role of technology becomes increasingly important to our efforts. We are using technology to improve the way we collect, analyze, and share information. We have seen significant improvement in capabilities and capacities over the past decade. At the same time, it is an area that remains a key concern for the future.

For example, in 2011, we deployed new technology for the FBI’s Next Generation Identification System. This technology enables us to process fingerprint transactions much faster and with more accuracy. In addition, throughout the Bureau, we are also integrating isolated stand-alone data sets so that we can search multiple databases more efficiently, and, in turn, pass along relevant information to our partners.

The FBI shares information electronically with partners throughout the intelligence community, across the federal government, as well as with state and local agencies. For example, the FBI works closely with the nationwide suspicious activity reporting (SAR) initiative to implement technical and business processes that enable the eGuardian system and the Information Sharing Environment’s Shared Space system to share SARs more quickly and efficiently. These efforts have worked to ensure that SARs entered into Shared Space are simultaneously shared with eGuardian, and in turn, delivered to the appropriate law enforcement and intelligence community partners.

Sentinel, the FBI’s next-generation information and case management system, was deployed to all employees on July 1, 2012. Sentinel moves the FBI from a paper-based case management system to a digital system of record. It enhances the FBI’s ability to link cases with similar information through expanded search capabilities and to share new case information and intelligence more quickly among special agents and intelligence analysts. It also streamlines administrative processes through “electronic workflow.” The FBI will continue refining and deploying additional Sentinel features according to employee feedback and organizational requirements.

The rapid pace of advances in mobile and other communication technologies continues to present a significant challenge to conducting court-ordered electronic surveillance of criminals and terrorists. These court-ordered surveillances are often critical in cyber cases where we are trying to identify those individuals responsible for attacks on networks, denial of services, and attempts to compromise protected information. However, there is a growing and dangerous gap between law enforcement’s legal authority to conduct electronic surveillance, and its actual ability to conduct such surveillance. Because of this gap, law enforcement is increasingly unable to gain timely access to the information it needs to protect public safety and bring these criminals to justice. We are grateful for this subcommittee’s support in funding the National Domestic Communications Assistance Center, which just opened its doors last month. The center will enable law enforcement to share tools, train one another in modern intercept solutions, and reach out to the communications industry with one voice.

It is only by working together—within the law enforcement and intelligence communities and with our private sector partners—that we will find a long-term solution to this growing problem. We must ensure that the laws by which we operate and which provide protection to individual privacy rights keep pace with new threats and new technology.

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Responding to this complex and ever-changing threat environment is not new to the FBI; in fact, it is now the norm. The resources this subcommittee provides each year are critical for the FBI to be able to address existing and emerging national security and criminal threats.

Chairman Wolf, Ranking Member Fattah, and members of the subcommittee, I would like to close by thanking you for this opportunity to discuss the FBI’s priorities. Mr. Chairman, let me acknowledge the leadership that you and this subcommittee have provided to the FBI. The transformation the FBI has achieved would not have been possible without your support. Your investments in our workforce, our technology, and our infrastructure make a difference every day at FBI offices in the United States and around the world, and we thank you for that support.

I look forward to any questions you may have.

Michael Musacchio, 61, of Plano, Texas, was found guilty by a federal jury in Dallas of one felony count of conspiracy to make unauthorized access to a protected computer (hacking) and two substantive felony counts of hacking.

According to the evidence submitted at trial, from 2002 to 2004, Musacchio was the president of Exel Transportation Services, a third party logistics or intermodal transportation company that facilitated links between shippers and common carriers in the manufacturing, retail, and consumer industries. In 2004, Musacchio left Exel to form a competing company, Total Transportation Services, where he was the original president and CEO. Two other former Exel employees, Joseph Roy Brown and John Michael Kelly, also went to work at Musacchio’s new company. Trial testimony and exhibits established that between 2004 and 2006, Musacchio, Brown, and Kelly engaged in a scheme to hack into Exel’s computer system for the purpose of conducting corporate espionage. Through their repeated unauthorized accesses into Exel’s e-mail accounts, the co-conspirators were able to obtain Exel’s confidential and proprietary business information and use it to benefit themselves and their new employer.

A federal grand jury had returned an indictment against the three men on November 2, 2010. Brown and Kelly entered guilty pleas on May 19, 2011, and August 2, 2012, respectively, and are awaiting sentencing. Musacchio is scheduled to be sentenced on June 14, 2013, before U.S. District Judge Jorge A. Solis in the Northern District of Texas.

The case was investigated by the FBI Dallas Field Office and was prosecuted by Assistant U.S. Attorneys Linda Groves and Candina Heath and Trial Attorney Rick Green of the Criminal Division’s Computer Crime and Intellectual Property Section.

United States District Judge Ronald M. Whyte sentenced Zhang to serve three months in prison, to be followed by a three-year term of supervised release. Among the conditions of supervised release are that Zhang shall perform 200 hours of community service. The defendant was also ordered to pay $75,000 in restitution to the victim, Marvell Semiconductor Inc. (Marvell); that sum is to be paid in full on or before May 31, 2013. Judge Whyte stated that Zhang’s conduct was “unacceptable” and that he hoped his sentence would carry a “strong deterrent message.”

In a verdict published on May 29, 2012, Judge Whyte found Zhang guilty of three counts of theft and copying of trade secrets for downloading the trade secrets from a secure database, one count of duplication of trade secrets for loading those trade secrets onto a laptop provided by his new employer, and one count of possession of stolen trade secrets. Zhang was acquitted of three counts of computer fraud and one count of unauthorized transmission of a trade secret. The guilty verdict followed a two-and-a-half-week trial before Judge Whyte, which began on October 24, 2011 and concluded on November 9, 2011.

Evidence at trial showed that Zhang, 44, of Belmont, California, was employed as a Project Engineer at Netgear Inc., of San Jose, which gave him access to Marvell’s secure database (“Extranet”). On March 8, 2005, Zhang accepted a position at Broadcom Corporation (Broadcom), which is also Marvell’s chief competitor. Beginning the very next day, March 9, 2005, and continuing on two other days before he left Netgear, Zhang used his Netgear account to download and steal trade secret information found in dozens of documents, datasheets, hardware specifications, design guides, functional specifications, application notes, board designs, and other confidential and proprietary items from Marvell. On April 27, 2005, Zhang loaded the Marvell trade secrets onto a laptop issued by Broadcom, where they continued to reside on June 24, 2005, when the FBI served search warrants at Zhang’s home and at Broadcom and took possession of his laptop.

“The protection of intellectual property rights, especially in Silicon Valley, is of vital importance to the economic security of our region,” said United States Attorney Melinda Haag. “The investigation and prosecution of thefts of trade secrets remains a significant priority for this office. I certainly hope the court’s sentence sends a strong message that in addition to the personal, professional, and financial costs, which are significant in themselves, these offenses result in prison time.”

The conviction is the result of an investigation by the Federal Bureau of Investigation. The investigation was overseen by the Computer Hacking and Intellectual Property (CHIP) Unit of the U.S. Attorney’s Office. Matthew Parrella and David Callaway are the Assistant U.S. Attorneys in the CHIP Unit who prosecuted the case with the assistance of Legal Tech Nina Burney-Williams. Both Marvell Semiconductor Inc. and Netgear Inc. cooperated fully with the FBI in the investigation.

Manhattan U.S. Attorney Preet Bharara said, “As alleged, these defendants sold the automobile replacement parts equivalent of designer knock-offs but represented to their unsuspecting customers that they were buying the ‘name brand.’ And while their replacement parts may have been no different from many other generic parts sold every day in the aftermarket, they were able to command the same higher prices charged by the automobile manufacturers’ whose names they stole. We encourage those who think they may have purchased counterfeit parts from these defendants or from anyone else to call the numbers listed at the end of this release.”

FBI Assistant Director in Charge George Venizelos said,  “While it is not generally against the law to sell replicas or imitations, it is illegal to try to pass them off as authentic or original. Likewise, there is a legitimate market for aftermarket auto parts, but these defendants allegedly packaged parts to appear to be original manufacturer equipment and sold them as such. That isn’t legitimate; it’s fraud.”

According to the allegations in the indictments unsealed in Manhattan federal court earlier today:

Background

New automobiles sold to consumers are equipped with automotive parts that are manufactured or provided by the automobile’s manufacturer (“Original Equipment Manufacturer” or “OEM”). When a consumer needs to replace a part in an automobile, he or she can purchase either parts made by OEMs, which are sold under the OEMs’ brand names; or generic parts made by other manufacturers that are commonly referred to as “aftermarket” parts. Generic parts are regularly bought and sold lawfully as aftermarket parts, typically at lower prices than OEM parts. Many types of aftermarket parts—including those sold and falsely packaged as OEM parts by Malhotra, Kilani, and Dininni—do not have to meet independent federal safety standards.

Malhotra and Kilani

From October 2011 through February 2013, Malhotra, who operated Worldwide Auto Parts and S&S International Products and Manufacturing in Paterson, New Jersey, and Kilani, who operated Cypros Trading and Shipping in Paterson, New Jersey, conspired to sell counterfeit OEM parts. Specifically, the defendants and their co-conspirators deceptively packaged and caused to be packaged certain aftermarket automotive parts—including brakes, brake pads, brake shoes, ignition coils, water pumps, window regulators, suspension sway bar links, wheel hubs, anti-lock braking sensors, control arm bushings, transmission filters, pitman arms, tie rod ends, and suspension air springs—to falsely make it appear as though these parts had been manufactured by OEMs such as Ford Motor Company, General Motors, and Federal Mogul (the “manufacturers”). They sold these parts to individuals and entities that they understood would re-sell them to the general public and to certain automotive repair shops,

including repair shops that service New York City’s taxis and limousines, which are subject to separate and regularly scheduled safety testing by the New York City Taxi and Limousine Commission. Malhotra obtained some of these counterfeit parts from China, and Kilani exported some of these counterfeit parts to Saudi Arabia.

Dininni

Similarly, from November 2011 through June 2012, Dininni, who operated Professional Parts USA in Easton, Pennsylvania, also conspired to sell counterfeit OEM parts. Along with his co-conspirators, Dininni also deceptively packaged and caused to be packaged certain aftermarket automotive parts, including brake pads and water pumps to falsely make it appear as though these parts had been manufactured by OEMs. Dininni and his co-conspirators then sold these parts to individuals and entities that they understood would re-sell them to the general public and to certain automotive repair shops, including repair shops that service New York City’s taxis and limousines.

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Malhotra, 67, of Norwood, New Jersey; Kilani, 28, of Englewood, New Jersey; and Dininni, 57, of Easton, Pennsylvania, are each charged with one count of conspiracy to traffic in counterfeit goods, which carries a maximum sentence of five years in prison, and one count of trafficking in counterfeit goods, which carries a maximum sentence of 10 years in prison.

As the U.S. Attorney’s Office and the FBI identify individuals and entities that may have purchased counterfeit automotive parts from these defendants, both will make appropriate notifications. If you believe you may have purchased any counterfeit automotive parts from these defendants or anyone else, you may wish to have your car inspected at an authorized and qualified vehicle inspection facility to determine whether the parts in question are counterfeit.

Mr. Bharara praised the outstanding investigative work of the FBI. He also thanked U.S. Customs and Border Protection, Immigration and Customs Enforcement’s Homeland Security Investigations, and the U.S. Department of Commerce for their assistance with this investigation.

This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Joseph Facciponti and Christopher D. Frey are in charge of the prosecution. Assistant U.S. Attorney Paul Monteleoni is in charge of the asset forfeiture aspects of the case.

If you have questions, you may call the victim witness hotline for the U.S. Attorney’s Office at (866) 874-8900 or the FBI at (212) 384-2135. Several original equipment manufacturers have also established numbers, which you may call with questions. You may call Ford Motor Company at (313) 337-3663, Federal Mogul at (877) 489-6659, and Chrysler at (855) 818-7612.

The charges contained in the ndictments are merely accusations, and the defendants are presumed innocent unless and until proven guilty.